Scotia Capital Following the close of Rogers Communications Inc.’s acquisition of Shaw Communications Inc. , Scotia Capital analyst Maher Yaghi expects “a more challenging period” for the Canadian telecom industry in Canada.
“We expect the combination of increased regulatory risk and change in market structure to likely lead to increased pressure on broadband and wireless prices, respectively,” he said.
In a research report released Monday, Mr. Yaghi said he continues to view Fixed Internet as “the only growth driver in the sector, offsetting the deterioration in legacy phone and TV services.”
“For Q1, we expect FTTH momentum to have continued with telcos (BCE & TELUS) winning 61K subscribers relative to cablecos of 14K,” he said. “We believe telcos will continue to heavily lean on FTTH promotions to gain subscribers throughout the year in response to cablecos’ strengthened bundling capabilities resulting from the Shaw transaction ... The ability to provide customers with wireless and wireline bundled services is imperative for QBR and RCI post the Shaw transaction in terms of subscriber growth and retention. During the quarter, we noticed that cablecos have become more aggressive in attacking telcos subscribers in non-fiber territories, while in fiber territories, cablecos continue remaining disciplined in price to protect the bottom line instead of defending for market share. As a result, we expect ARPU growth to stay flat year-over-year for the quarter. In addition, we expect TV services and legacy phone lines to decline as online content gains popularity and wireless substitution remains steady. Therefore, we estimate total subscriber growth of down 1.2 per cent among cablecos due to a decline in TV service (down 9K) and legacy phone lines (down 60K), partly offset by growth in the Internet (14K). Overall, we expect wireline revenue growth among Canadian cablecos to be negative in Q1F23 due to subscriber loss.”
Given his expectation for a challenging environment, Mr. Yaghi lowered his valuation multiples across the sector including:
- Telus Corp. ( “sector outperform”) to $30.50 from $32. Average: $31.37.